How Yahoo Is Trying To Drive Revenues For Tumblr?

Reports suggest that Yahoo! (NASDAQ:YHOO)   is in talks with Facebook for an ad partnership with Tumblr where Facebook will sell ads within the Tumblr mobile app, splitting the revenues with Yahoo.  While the company wrote off Tumblr’s goodwill partially last year and indicated that a complete write off might be happen in future, it remains one the key focus areas for Yahoo in 2016. The company appears to be undoing some of its past mistakes in Tumblr’s integration with the larger organization. It is rolling back its sales integration within Yahoo’s broader organization, which seemed to have impacted Tumblr’s revenues.  We believe that, as Yahoo restructures itself by shutting down unprofitable segments, it will focus on Tumblr as a revenue driver.  The deal with Facebook should enable the company to boost its advertising revenue on this platform.

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Benefitting From the Leader In Social Media Advertising

While Tumblr’s users have increased at a steady pace since its acquisition by Yahoo, the blogging website did not meet its $100 million revenue target for 2015. The company is now trying to revive this division, which is suffering from a mismanaged acquisition. Tumblr has begun to pitch agencies on “blogless” sponsored posts, dropping the requirement for brands to have a blog on Tumblr in order to run their sponsored posts in user’s feeds or dashboards.  A Tumblr-dedicated direct sales team is now managing advertising of the segment, after the failure of an integrated sales effort, as content on Tumblr differed significantly from other Yahoo website.  According to eMarketer, social media ad spending will reach nearly $36 billion by 2017, with Facebook dominant, commanding more than 65% of the total advertising spend. Through its Facebook Audience Network, the company feeds ads to other mobile apps and websites, and if the deal between the two companies goes through, Tumblr will be part of this program. While 80% of Facebook’s revenues are from mobile ads, Tumblr’s growth in users is also primarily driven by an increase in mobile users. By entering into a partnership with Facebook, Tumblr should be able to get the initial push it needs to increase advertising on its platform.  Reports suggest that currently only 10-15% of Tumblr’s available advertising inventory is being sold.  Until its direct sales efforts bear more fruit, the deal with Facebook should help increase its advertising revenues.

According to Zenith Optimedia by 2017 businesses globally will spend more on advertising on the internet than on television, driven by demand for ads on social media, online video and paid search. While Tumblr has been able to maintain its popularity and increase users over the years, monetization of the platform has been challenge. The Facebook partnership should give it the necessary boost.  We thus believe this can be a key driver for revenues for this division in the near future.

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